Testing the Melitz Model of Trade: an Application to U.S. Motion Picture Exports

60 Pages Posted: 3 Nov 2008 Last revised: 8 Jul 2010

See all articles by Gordon H. Hanson

Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Chong Xiang

Purdue University - Krannert School of Management

Date Written: October 2008

Abstract

In this paper, we develop a simple empirical method to test two alternative versions of the Melitz (2003) model, one with global fixed export costs and one with bilateral fixed export costs. With global costs, import sales per product variety (relative to domestic sales per variety) are decreasing in variable trade barriers, as a result of adjustment occurring along the intensive margin of trade. With bilateral costs, imports per product variety are increasing in fixed trade costs, due to adjustment occurring along the extensive margin. We apply our approach to data on imports of U.S. motion pictures in 46 countries over 1995-2006. Imports per product variety are decreasing in geographic distance, linguistic distance, and other measures of trade costs, consistent with adjustment to these costs occurring along the intensive margin. There is relatively little variation in the number of U.S. movies that countries import but wide variation in the box-office revenues per movie. The data thus appear to reject the bilateral-fixed-export-cost model in favor of the global-fixed-export-cost model.

Suggested Citation

Hanson, Gordon H. and Xiang, Chong, Testing the Melitz Model of Trade: an Application to U.S. Motion Picture Exports (October 2008). NBER Working Paper No. w14461. Available at SSRN: https://ssrn.com/abstract=1294136

Gordon H. Hanson (Contact Author)

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chong Xiang

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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